1. Energy and Sustainability Part B
Chapter 15
Energy and Sustainability Part B
“There is something fundamentally wrong in treating the earth as if it were a business in liquidation.”
-Herman Daly (1977)
Peter Schwarz
Professor of Economics, Belk College of Business and
Associate, Energy Production and Infrastructure Center (EPIC)
UNC Charlotte

2. Outline Introduction Meaning of Sustainability
Dynamic Energy Market Conditions
Sustainable Energy
Energy Efficiency and Conservation
Consumption Strategies
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3. Dynamic Energy Market Conditions (1)
The Hotelling Rule:
Addresses the efficient rate of non-renewable resource extraction
Implies that competitive markets will efficiently balance extraction between now and the future
Does not guarantee that use today will not compromise use for future generations
Peak Oil:
Proposed by M. King Hubbert, a Shell Oil geologist, in 1956
Suggested oil production would peak around 1970 and decline from there
Did not consider the effect of prices
While the Hotelling Rule will give the efficient extraction schedule, it will not ensure that any resources are left for the future
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4. Dynamic Energy Market Conditions (2): Impacts of Growing Global Energy Demand
Demand expected to increase as population grows and developing countries advance
Why has the price of oil not been increasing?
Energy consumption decreased in the wake of the Great Recession
Efficiency has improved
Post-recession demand should continue to increase, but at a slower rate than some expected
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5. Dynamic Energy Market Conditions (3): Supply Considerations
Limits to Growth:
1972: Claimed we will run out of resources
1992: Shifted focus to pollution
2002: Suggested that population growth would overwhelm resources
Regardless of their main point, advocates of “Limits to Growth” assume we will eventually overshoot the earth’s ability to withstand human impact
Assumes exponential growth, which is not always the case, and does not consider technology
Thomas Malthus, 1798
Predicted that populations would outstrip food supplies leading to massive starvation
Those who still embody the perspective that population increases threaten human well- being are known as Neo-Malthusians
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6. Sustainable Energy (1)
Energy use today that does not reduce the supply available to the next generation
Wind and solar are the primary sources
Hydro, geothermal, and biomass are also sustainable so long as the resource does not deplete over time
Amory Lovins (1976) coined the phrase “Soft Path” as using renewables as opposed to fossil fuels
Advocates call for a transition to the soft path as quickly as is feasible
Suggest the immediate retirement of coal plants due to environmental concerns such as climate change
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7. Sustainable Energy (2): Biomass Energy
What is the difference between renewable and sustainable?
Sustainable Energy (2): Biomass Energy
The most ancient of fuels
Wood is still widely used and is renewable, although rarely sustainable
Often wood will be harvested at a rate greater than its growth rate
Trees store carbon as they grow, which is released back into the atmosphere when burned
Fuels that compete with food sources, such as corn-based ethanol, increase food prices and have a disproportionate effect on low income households
Trash-burning plants produce a great deal of local air pollution in addition to creating unpleasant odors in surrounding areas
Algae for energy production is too expensive
Exxon abandoned the investigation of algae as it was deemed too costly
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8. Sustainable Energy (3) Nuclear: Coal:
Potentially 65,000 years of uranium supply
The only dispatchable carbon free energy source
But produces waste that will last for eons
Coal:
Acts as a baseload in place of intermittent renewable generation
Advanced combustion
Converts solid coal into a synthetic gas (syngas), which is cleaner but more expensive
Super and ultra-supercritical power plants
Achieve higher heat rates, but cost significantly more to build
Carbon Capture and Storage (CCS)
Captures carbon before it leaves the plant and stores it in old mines or gas wells
In the development stage
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9. Energy Efficiency and Conservation (1)
Reduce:
We could consume less or find technologies that are less energy-intensive
Shifting from a manufacturing to a service oriented economy has also reduced energy use
Reuse:
Forgoing the production of an additional item will result in energy savings
Recycle:
Reusing the aluminum from used cans will prevent the use of additional materials, but will not necessarily save energy
There are many instances where recycling costs more than new production
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10. Energy Efficiency and Conservation (2): The Rebound Effect
Energy efficiency entails using less energy to achieve a given outcome
Increased home insulation will allow you to maintain a given level of comfort while reducing your electricity bill
However when price decreases, quantity demanded increases
Energy use will decrease, but not by an amount proportional to the efficiency gains
Joskow and Marron (1992) suggest that energy efficiency programs may cost up to twice as much as advertised per kWh saved
The rebound effect is still economically efficient
You are making more use of the energy now that it costs less per unit of comfort
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11. Consumption Strategies (1): Renewable Portfolio Standards
Set targets for minimum amounts of renewable energy as a percentage of total energy used for electricity generation
States set their own standards
All plans are not created equal
North Carolina includes minimum requirements for generation from swine and poultry waste
The result of successful lobbying by the industry
Converting such waste to electricity is both dirty and expensive
Duke Energy, headquartered in Charlotte, NC, argues that wood burning power plants should be included in the standards
Environmentalists argue that utilities will be encouraged to harvest old growth forests
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12. Consumption Strategies (2): Feed-In Tariffs
A price approach as opposed to a quantity approach
Hypothetically equivalent to RPS
Encourages investment in renewable technologies by promoting long- term contracts between producers and utilities at higher than market prices
Legal issues in the U.S. have discouraged the use of FITs
Primarily used in the EU
Germany and Spain were heavy users of FITs
A success in terms of increased investment in renewables
A failure in terms of costs to taxpayers
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13. Consumption Strategies (3): Demand Response Mechanisms
Customers have traditionally resisted dynamic pricing that charges higher prices during peak hours
Utilities can hypothetically achieve the same result by paying customers to decrease use during peak hours
Think back to the Coase Theorem
In reality, complexities make it difficult to obtain efficient results
What is the correct price to pay consumers?
Avoided cost of new capacity or the avoided cost of short-run fuel?
How do we know the amount by which consumers have reduced their load?
Determining an accurate counterfactual may not be possible
Wind power at night may have a negative value
Texas gives it away.
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